‘Dark store’ valuation slashes what it owes

Lowe’s wants its 10 San Antonio area stores valued as vacant stores rather than fully functioning businesses, thus lowering its property values and tax bills.

Lowe’s wants its 10 San Antonio area stores valued as vacant...

Lowe’s Home Centers says it’s seeking a “fair and appropriate valuation” by waging a legal battle to have its San Antonio area stores valued as if they were empty — a move that could dramatically cut its property values and taxes and sets the stage for other retailers to follow suit.

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The North Carolina-based home improvement chain argues that the Bexar County Appraisal District should price its 10 area stores, all measuring about 136,000 square feet, as vacant buildings, or “dark stores,” instead of functioning businesses. Big-box retailers including Lowe’s have convinced judges in Michigan and Indiana to value their stores this way rather than under the “highest and best use” method preferred by county appraisers, which assesses the market value of the property in its current condition.

The value of the chain’s stores — currently priced between $80 and $85 per square foot — could plummet about 60 percent to around $30 a square foot if Lowe’s wins in its lawsuit against the appraisal district.

Lowe’s spokeswoman Karen Cobb said the retail chain wants a “fair assessment” of its properties from the appraisal district. She said the company often hires independent appraisers to compare like properties in the area when determining individual stores’ value. But she did not discuss the “dark store” strategy or how many lawsuits the company has filed in Texas using the argument.

“Like any property owner, we are concerned with the fair and appropriate valuation of our property under the law,” Cobb said in an email. “State and local governments have processes in place for all owners to appeal the valuation of their property. Lowe’s pays property tax, income tax, sales and use tax and, just like homeowners, we want to be taxed on the fair value of our buildings and land.”

City and county officials forecast big losses in commercial property value and tax revenue and an increased property tax burden on homeowners if Lowe’s emerges victorious from its lawsuit against the appraisal district.

And, other retailers and businesses could embrace the strategy, officials say. Commercial properties in Bexar County could lose $64.3 billion in assessed value within five years if Lowe’s wins and other commercial property owners adopt the “dark store” assessment strategy, according to estimates tallied by the Bexar County Appraisal District. A separate estimate based on the appraisal district’s projections predicts the city could lose $272.5 million in tax revenue within five years of a favorable ruling for Lowe’s.

“If they can get their properties valued as an abandoned building, that domino effect starts going to everybody else,” Bexar County Judge Nelson Wolff said. “It would have a huge impact beyond just what might be happening at Lowe’s.”

When asked about the potential financial impact on tax revenue, Cobb said, “it’s inappropriate to speculate on the outcome of a situation the courts are considering.”

Taxing entities in Michigan and Indiana took a hit after Lowe’s and other retailers successfully sued to have their buildings valued as “dark stores.” Michigan taxpayers have handed back almost $100 million to retailers since 2013 after the Michigan Tax Tribunal made several rulings in favor of retailers who used the argument, a 2015 study by the Michigan Association of County Treasurers shows. Another study conducted last year by the Indiana Association of Counties found big retailers such as Lowe’s saw $120.8 million in tax reductions resulting from “dark store” assessments as other taxpayers saw their tax bills spike by $49.9 million.

Lost tax revenue isn’t county treasurers’ only concern when fighting “dark store” lawsuits. Appraisal districts in Hunt, Taylor and Denton counties have opted to settle similar lawsuits filed by Lowe’s and other retailers rather than spend scarce public funds on protracted legal battles.

Bexar County Chief Appraiser Michael Amezquita said he projects legal costs for arbitration proceedings concerning four of the contested properties to climb past $300,000. If Lowe’s decides to proceed with its lawsuit in court, that figure could climb into the millions, Amezquita said.

But, Amezquita said, “that’s a drop in the bucket compared to what we stand to lose if this becomes public policy for taxation in Texas.”